Friday, November 8, 2024

Federal Reserve cuts its key interest rate by a quarter-point amid postelection uncertainty

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WASHINGTON (AP) — The Federal Reserve cut its key interest rate Thursday by a quarter-point in response to the steady decline in the once-high inflation that had angered Americans and helped drive Donald Trump’s presidential election victory this week.

The rate cut follows a larger half-point reduction in September, and it reflects the Fed’s renewed focus on supporting the job market as well as fighting inflation, which now barely exceeds the central bank’s 2% target.

Thursday’s move reduces the Fed’s benchmark rate to about 4.6%, down from a four-decade high of 5.3% before September’s meeting. The Fed had kept its rate that high for more than a year to fight the worst inflation streak in four decades. Annual inflation has since fallen from a 9.1% peak in mid-2022 to a 3 1/2-year low of 2.4% in September.

In a statement after its latest meeting ended, the Fed said the “unemployment rate has moved up but remains low,” and while inflation has fallen closer to the 2% target level, it “remains somewhat elevated.”

After their rate cut in September — their first such move in more than four years — the Fed’s policymakers had projected that they would make further quarter-point cuts in November and December and four more next year. But with the economy now mostly solid and Wall Street anticipating faster growth, larger budget deficits and higher inflation under a Trump presidency, further rate cuts may have become less likely.

Speaking at a news conference, though, Fed Chair Jerome Powell said that “in the near term, the election will have no effects on our (interest rate) decisions.”

Powell said the Fed intends, over time, to keep reducing its key rate toward what the central bank calls “neutral” — a level that neither restricts nor stimulates growth. He and other officials have acknowledged that they don’t know exactly where the neutral rate is.

“We’re on a path to a more neutral stance,” the Fed chair said. “That has not changed at all. We’re just going to have to see where the data is.”

Beyond its economic consequences, Trump’s election has also raised the specter of meddling by the White House in the Fed’s policy decisions, with Trump having proclaimed that as president he should have a voice in the central bank’s interest rate decisions. The Fed has long guarded its role as an independent institution able to make difficult decisions about borrowing rates, free from political interference. Yet during his previous term in the White House, Trump publicly attacked Powell after the Fed raised rates to fight inflation, and he may do so again.

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